Gold prices melted to a four-month low as the greenback surged
after the Federal Reserve's minutes released Wednesday afternoon
reignited fears that the central bank will start scaling back
The minutes from the Fed's October meeting were about as clear
as mud to even CNBC's commentators. But gold's high-volume
anticipate the central bank will reduce its $85 billion monthly
bond-buying spree, known as quantitative easing, sooner than
Spot gold prices fell 2.5% to $1,243 an ounce in New York
SPDR Gold Shares (
), tracking a 10th of an ounce of bullion, sank 2% to 120.09 on
stock market today
Market Vectors Gold Miners ETF (
) tumbled 4% to 22.85 in above-average volume.
PowerShares DB U.S.
Dollar Index Bullish (
), measuring the greenback against a basket of major foreign
currencies, popped 0.5% to 21.82 as it snapped a three-day losing
Tapering Seen In January
"Any talk of less money in the system warrants a sell-off, but
gold has been weak (already) like bonds," said Fitz Garrett,
president of East Shore Partners, an economic research firm in
Hauppauge, N.Y. The market also undergoes tax-loss selling toward
the year's end he said.
GLD has tumbled 26% year to date, while GDX has plummeted 50%.
Investors don't need much of a reason to dump gold, which had
already been falling this year, James Koutoulas, CEO of Typhon
Capital Management in Chicago, with $50 million in assets under
management, said in an email. "I'll believe the taper when I see
it," he wrote.
Ryan Sweet, a director at Moody's Analytics in Westchester,
Pa., expects the Fed to start tapering bond purchases in January
on expectations that the economy will strengthen into next year,
contingent on the job market improving.
"The Fed has signaled change is coming," Sweet said. He
believes the Fed is trying to stress that although it may scale
back bond purchases, it will keep interest rates low for the
Fed Chairman Ben Bernanke is unlikely to enact major policy
changes before stepping down this year and will leave it to Fed
Chair nominee Janet Yellen next year, said Ethan Anderson, senior
portfolio manager at Rehmann Financial in Grand Rapids, Mich.,
with $1.2 billion in assets under management. He reasons that the
Fed will have to tighten the spigots soon because the Treasury
will issue less debt in response to lower federal deficit
"The Fed will have to taper because there may not be enough
debt out there to purchase," Anderson said.
The Case For QEternity
On the other hand, critics of the Fed doubt the Fed could ever
take the economy off its easy-money meds. The minute the Fed
scales back its monthly bond-buying program, the stock market and
housing would collapse, while interest rates and gold prices
would skyrocket, said Peter Schiff, an economist and president of
Euro Pacific Capital in Westport, Conn.
Not only will the Fed have to continue its stimulus program,
it will have to boost the bond-buying spree to $100 billion a
month to support the economic recovery, Schiff said. "They can't
admit that the economy that they created is unsustainable if they
taper. They have to maintain the illusion that the recovery is
The economy is worse off now than in September, Schiff
contends, citing weak home sales and consumer confidence among
other economic indicators. Existing home sales fell 3.2% in
October (month-on-month) to a lower-than-expected annual rate of
5.12 million units -- their lowest level since June -- the
National Association of Realtors reported Wednesday.
The consensus forecast sales to dip to 5.13 million units.
Sales growth decelerated to 6% year over year as interest rates
rose and the median home price climbed nearly 13% year over year
Consumer confidence fell to a two-year low, according to the
monthly Discover U.S. Spending Monitor, released last week. A
Gallup poll this month showed retailers expect flat sales this
holiday season amid high unemployment and rising health care
Silver prices slipped 2.4% to $19.90 an ounce.
IShares Silver Trust (
) declined 2% to 19.14. It's slumped 35% this year.
Silver Miners ETF (
) gave back 3% to 11.60, leaving it with a 52% loss year to
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